The Ultimate Guide to Your Taxes
With tax season upon us, everyone is generally scrambling until the mid-April deadline to find old receipts, analyze spending habits, and maximize their refunds. Though tax season doesn’t need to be so daunting—it can actually be a cathartic time to clean out the files from last year and plan for better spending habits for the future. By following a few simple guidelines, taxpayers can get their maximum refunds, lower their spending, and minimize their interest payments on their credit cards—all in one easy month.
April is the best time to decide to make better decisions for the upcoming year. A few simple steps is all it takes to get back on the right track.
File Taxes Online
There used to be a time when filing taxes meant a huge stack of confusing paperwork and guesswork. Now it’s easy to file taxes online using tax software. There are even plenty websites that offer free online tax software. Some even offer free or inexpensive state filing. H&R Block and Turbotax both offer free online help with their free tax software, and H&R Block offers free in-person help to customers who use their free tax filing software.
There are plenty of new free tax software companies popping up all over the internet. The downside is many of them only offer to file simple forms, like the 1040 EZ, for free. Taxpayers who need to file a schedule C must purchase a much more expensive version of the “free” tax software.
For those who file their taxes online, there is one more added benefit that snail mailers don’t receive: getting a refund back even faster. People who file their taxes online can expect a refund deposited right into their checking accounts within a few business days of being accepted.
Hire a Tax Professional
While nothing is cheaper than free online tax software, hiring a professional can also ease the stress of tax season. Since tax software has taken a huge chunk of the tax market in the past few years, many accountants have been lowering their fees to still get their piece of the tax pie. A professional can save money in the long run, especially for those who have confusing or complicated taxes. If audited, the taxpayer is responsible for paying all fees and penalties for improperly filed taxes—even if it was the tax software that made the mistake. Hiring a professional can ensure a proper refund or tax payment; the pros even know how to maximize refunds the tax software might not be able to.
Taxpayers should be careful who they hire and only hire a licensed professional. Each year, many taxpayers fall victim to fraudulent tax accountants and end up with their information stolen or even their tax returns stolen. Taxpayers should only give their information to a trusted accountant.
Maximize Tax Credits
Many taxpayers end up paying more than they need to because they aren’t aware of the many credits that are available to minimize taxes and maximize refunds. Tax return software can help guide taxpayers through the process of finding and maximizing credits; a tax accountant can also help with this process. Tax credits are given to parents, married couples and students just to name a few. If a taxpayer has had any business expenses—like clothes for work, a home office, office supplies, travel expenses, work meals, utility bills or employee expenses—taxpayers can deduct these too. Most charitable donations can be deducted from taxes, including donations of cars, clothing, money or other items.
The more complicated the tax forms, the more complicated the refund. Anyone filing a schedule C should pay special attention to ensure they get all the proper tax credits that are available to them.
Consolidate All Debt
While going through their budgets, debts, finances and expenses, taxpayers should pay attention to what debts they can eliminate or consolidate. Tax season is the best time to re-evaluate finances since taxpayers are already going through all this information and analysing spending habits from the previous year. When people go through their finances, they are able to close the books on the previous year and simply focus on the future.
Using a credit consolidating service or an online credit repair website can help minimize the amount of interest paid on credit cards each year. Some credit consolidation services can give peace of mind and a reduction in high interest and high payments. Consolidating multiple debts onto one credit card can provide interest-free financing for up to 18 months and minimize monthly minimums.
Make a Budget
Since tax season is the best time to analyse spending habits and finances, making a budget for the next year is much easier in the spring. Though a budget can feel like a daunting task at times, there is plenty of support out there for people who are looking to cut back their costs a little. Online budgeting software is great for discovering spending habits consumers may not notice and help them understand where they can cut back.
Even simple programs available to almost anyone who owns a computer, like Microsoft Excel, can help with budgets. Using cells and formulas, a budget can be made to create a clear spending plan for the upcoming year. Bank statements and credit card statements can be downloaded into .csv form and converted into an Excel spreadsheet.
Many people are surprised about some of the places where they spend money. Taxi cabs, expensive restaurants, movie tickets, plane tickets, grocery bills and clothing expenses can all add up. Tracking these expenses is the first step to setting up a clear budget. A general rule to pare back spending is to cut back 10 percent of current spending. After trying this for a month, many people are surprised how easy it is to cut back and to keep spending low while paying off debt.
Use a Tax Return to Pay off Debt
Receiving a hefty check at the beginning of the year can help curb poor spending habits for the rest of the year and help eliminate debt. Though it’s tempting to use a tax return on a vacation or new car, people who put their tax returns to good use by paying off a portion of their debt find it easier to stay out of debt. They also feel relieved when a huge portion of their debt is payed off and their minimum payments are drastically reduced.
Since this money isn’t usually budgeted into regular spending, it’s simply “extra” money that can be easily applied to current debts.